Analysis for the Initial Implementation of the Inpatient Rehabilitation Facility Prospective Payment System

Abstract : In the Balanced Budget Act of 1997, Congress mandated that the Health Care Financing Administration (HCFA) implement a Prospective Payment System (PPS) for inpatient rehabilitation under Medicare. This new PPS was implemented beginning on January 1, 2002. The Centers for Medicare and Medicaid Services (CMS, the successor agency to HCFA) issued the final rule governing the PPS on August 7, 2001. This report describes the research that RAND performed to support HCFA's efforts to design, develop, and implement this PPS. It presents recommendations concerning the payment system and discusses our plans for further research on the monitoring and refinement of the PPS. The initial design of the system was first presented in a Notice of Proposed Rule Making (NPRM) (HCFA, 2000). Our interim report, Carter et al. (2000), presented analyses that HCFA used to help make its decisions in the NPRM. In this report, we update these analyses using later data. We also improve the analysis and our recommendations to HCFA by taking into account comments made by our Technical Expert Panel in its review of our interim report. This is a report of research. The final decisions made by CMS and the rationale for those decisions may be found in the rule governing the IRF PPS (CMS, 2001). The new PPS applies to rehabilitation hospitals and to distinct rehabilitation units of acute care hospitals, which are excluded from the acute care PPS. To qualify for such exclusion, rehabilitation facilities must meet two conditions. First, Medicare patients must receive intensive therapy (generally at least three hours per day). Second, 75 percent of each facility's patients must have one of 10 specified problems related to neurological or musculoskeletal disorders or burns. We call this PPS the Inpatient Rehabilitation Facility PPS, or IRF PPS.